In the basic model of insurance, income is the only input into a person’s utility. This is obviously not realistic. If we relax our assumption that utility is determined only by income levels, can any insurance contract provide full protection against the possibility of becoming severely ill? Give examples of risks associated with becoming sick that are not typically covered by formal health insurance. Can you think of ways that people informally insure against these “uninsurable” risks?

3.

Which of the following statements is FALSE regarding the concept of "adverse selection"? Multiple Choice   Adverse selection describes a situation where an individual's demand for insurance is positively correlated with the individual's risk of loss.   Adverse selection occurs when someone increases their exposure to risk when insured. This can happen, for example, when a person takes more risks because someone else bears the cost of those risks.   The relationship between smoking status and mortality provides a good illustration for adverse selection, especially in the case in which a life insurance company did not vary its premiums according to smoking status of its customers.   To counter the effects of adverse selection, insurers may offer premiums that are proportional to a customer's risk.

If the demand curve is steeper for particular health services the moral hazard is less ? True or false  Explain briefly.

While it may seem intuitively obvious that health expenditures will increase as a population age – older people, after all, are less healthy on average than younger people – in fact, several prominent health economists have argued that it is not ageing per se, but rather some of the correlates of an ageing population that cause health expenditures to rise as population ages. For instance, Getzen (1992) argues that, at least in part, rising health expenditures with an ageing population are due to the higher incomes and resources of the older population; health care is a normal good, so higher incomes lead to higher expenditures. In a similar manner, Zweifel et al. (1999) argue that the real problem with an ageing population, at least as far as health care costs are concerned, is that there will be more people who are within a couple of years of dying. Since health care expenditures rise sharply close to the end of life, it is this, rather than population ageing by itself, that leads to…

A patient named Jen visits Dr. Jan. Dr. Jan is nearly certain that Jen only has a cold. But because Dr. Jan is afraid of malpractice lawsuits, she orders an extensive battery of tests just to make sure that Jen can never claim—if she turns out to have something more severe—that Dr. Jan shirked her duties as a medical professional. Dr. Jan’s behavior is an example of:   a. Asymmetric information. b. Fee-for-service. c. Defensive medicine. d. Positive externalities.

See attachment. Whats the the maximum health insurance premium the individual is willing to pay?